Managing DINK (Dual Income No Kids) Finances
Move over Yuppie, there’s a new acronym vying for the spotlight. In case you forgot, Yuppie is in fact a slang term that stands for young upwardly mobile professional or young urban professional. However, it certainly wasn’t the first acronym society made up to describe the income level and cultural choices of our peers- and it certainly won’t be the last. Take SINBAD– single income, no boyfriend, absolutely desperate. Or SINC– single income, nine cats…you get the picture.
The DINK (dual income no kids) acronym was born in the 1980s as a result of some cultural shifts in the US and throughout the world. Couples began waiting longer to have kids and higher percentages of couples were deciding to not have children at all. In 1970, the average age of a first-time mom in the US was 24.6. By 2018, the average age rose to 28 years old. Such a trend makes it likely that DINK will have a bit more staying power than SINC.
So what does DINK mean exactly? Dual income no kids can refer to a phase of life (pre-kids), or it could be an entire life choice. Whether married or not, it encompasses two working partners who do not have children.
For those who fall into the DINK category, either temporarily or permanently, there are 4 considerations that can help you best manage your finances.
1. Beware of overspending
If you Google DINK finances, there are a lot of articles out there that talk about DINKs having “extra” money. Let’s put that myth to rest once and for all. You are not, in fact, paid to not have children. Thus, you do not have any “extra” money because you are a dual-income family without children. Your expenses are simply different than families who do have children. If reading this is painfully obvious – that’s a good thing. But it’s important to realize how sneakily some of that messaging can begin to influence your attitude on healthy spending habits.
Lots of companies and services specifically target DINKS with advertising aimed at using up all your disposable income. But being a DINK doesn’t necessarily mean you have disposable income, let alone an abundance of it.
Lifestyle inflation is closely tied to consistent overspending. Lifestyle inflation is the tendency for your expenses to increase just as fast, if not faster, than your income. It’s a dangerous habit because it is insidious, inhibits wealth creation, and can easily disrupt your financial goals.
Whatever your financial plans are, it’s important to keep in mind that plans change. Perhaps you and your partner decide that you do want to eventually have kids. Maybe you’d like to retire early, or even start up your own business. Regardless of what the reasons are, it’s essential to be smart about the way you spend your money.
Spending money just because you have it won’t lead you anywhere good. Keep your spending purposeful and don’t get caught up in the mentality that you have any “extra” money. There is no such thing as “extra” money, only money which hasn’t been allocated yet to the right purpose.
2. Tax burden
DINKs do not typically qualify for many tax breaks that many families with children qualify for. Therefore, they often fall into higher tax brackets than many of their equivalent income peers do who have children. With that, it’s important to seek out tax-advantaged investment opportunities.
401(k)
One way to reduce your taxable income is to maximize your annual 401(k) contributions. Since your 401(k) contributions are pre-tax, it reduces your taxable income. However, it’s also important to remember that that money won’t be tax-free forever. Once you begin taking distributions from your 401(k) in retirement, you’ll pay tax on your principal investment as well as on all of the gains.
Roth IRA
Maxing out a Roth IRA is a good way to balance out your portfolio. Roth IRA contributions are made with post-tax dollars. So while those contributions won’t reduce your current taxable income, it will reduce your retirement income tax liability. Since Roth IRAs are funded with post-tax dollars, neither your principal investment nor any of the growth will be taxed when you begin taking disbursements.
HSA
Another opportunity you could take advantage of is a Health Savings Account (HSA). Many people think of HSAs as an extra savings account for health-related funds. However, you can also invest HSA funds. Similar to a 401(k), an HSA allows you to invest pre-tax dollars thereby reducing your current taxable income.
In order to qualify for an HSA, you must be enrolled in a high-deductible health insurance plan along with a handful of other requirements. The beauty of Health Savings Accounts is that you are able to use those funds tax-free on a long list of qualified medical expenses throughout your life. If you invest all or part of your HSA funds, your money will be able to grow tax-free. If you elect to utilize any of your HSA funds on non-medical related expenses, then those dollars will be taxed similarly to your 401(k) distributions.
3. Long term care arrangements
It’s important to consider your long term care regardless of whether or not you have children. However, it tends to be a different conversation for DINKS because there is one less option to count on… your kids to assist you.
Fidelity found the expected healthcare costs to be $150,000 for women and $135,000 for men throughout retirement. One option to help pay those costs is through long term care insurance policies. There are a multitude of plan options, but as with any insurance plan, the more you pay the more the policy covers. The tricky part about long term care planning is that it’s inherently difficult to know what you may or may not need in a policy. So you may end up paying a pretty penny for a good policy and hardly use it, or you may opt for a budget-friendly policy and end up paying out of pocket for anything you need that isn’t covered.
This why it’s important to make long term care a part of your savings and retirement plan. Whether you utilize something specific like an HSA, or build that into your investment plan through 401(k) and Roth IRA contributions, having a buffer to help pay for healthcare costs will give you much more flexibility throughout retirement.
4. Estate planning
Where do you want your earthly possession to go after you’re gone? Many parents opt to leave their estate to their children. Whether you have children or not, it’s better not to leave any of those decisions to chance. So first things first, it’s important to establish a will. Even if you do not have any heirs, you still have plenty of options – they may just require some additional planning. Some of those options include setting up a charitable trust, donating your assets to an organization, or choosing another close family member or friend as a designated beneficiary.
The bottom line
DINKs, SINCs, SINBADs, and Yuppies alike all benefit from following the same foundational principles of personal finance:
– Spend less than you make
– Make your money work for you
– Hope for the best but plan for the worst
However, the four aforementioned considerations of overspending, taxation, long-term care, and estate planning will help make sure that those in the dual income no kids category are accounting for their unique life factors.
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